Top broker says Domino’s (ASX:DMP) share price is cheap after selloff

Is it time to buy a slice of Domino’s?

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The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price was well and truly out of form on Thursday.

The pizza chain operator’s shares sank 18% after the market responded negatively to its annual general meeting update.

Friday has been better, with the Domino’s share price up 1% to $117.01 at the time of writing.

Is the weakness in the Domino’s share price a buying opportunity?

One leading broker that remains positive on the Domino’s share price is Goldman Sachs.

In response to its update, the broker retained its buy rating but trimmed its price target on the company’s shares by 5.1% to $147.00.

Based on the current Domino’s share price, the implies potential upside of 25.5% for investors.

What did the broker say?

According to the note, Goldman was surprised with Domino’s update and particularly the performance of its Japanese operations.

It commented: “The AGM trading update for DMP was significantly negative vs. GS estimates, largely as a result of weaker trading in Japan in October. The update was light on details but reported +4.3% SSS growth for the 1st 18 weeks of FY22, which indicates a 2 year cumulative trend of 13.1% vs. 13.7% in the 1st 7 weeks. While this is not necessarily weak in itself, we see the outlook for Japan as the key concern.”

However, while this was disappointing, Goldman feels that Domino’s long term outlook remains intact. In light of this, it is holding firm with its bullish stance on the Domino’s share price.

Goldman explained: “Overall, we believe that the longer term growth outlook driven by strong store growth remains unchanged. We make no changes to our store forecasts, but backend weight the rollout in FY22 in line with guidance. Overall, our revised forecasts still imply a 3 year CAGR EBITDA outlook of +14.6% driven by overall strength in Europe (+19.7%) and Japan (+15.3%).”

“Our revised 12m Target Price on DMP is at A$147.00. While we expect near term trading to remain weak due to the uncertainties in Japan, we believe the longer term outlook for the stock remains strong. We reiterate our Buy rating on the name,” it concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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